Nigeria’s external sector is showing signs of structural strain as capital flow dynamics shift, with a steep drop in foreign portfolio investment (FPI) and rising external outflows reshaping the country’s Balance of Payments position in 2025.
Fresh data released by the Central Bank of Nigeria (CBN) indicates that while the country maintained a current account surplus, underlying weaknesses in capital inflows and rising obligations significantly weakened its overall external financial standing. The Balance of Payments (BoP) fell by 38 per cent to $4.23 billion, reflecting growing pressure on foreign exchange stability and investor sentiment.
Nigeria moved from lending more money abroad to borrowing in 2025, with its financial account dropping from $9.65 billion to a $1.69 billion deficit as investors pulled back due to uncertainty.
Foreign portfolio investment, typically a key source of liquidity in Nigeria’s financial markets, declined sharply by 48.3 per cent to $8.04 billion, down from $15.55 billion the previous year. Analysts interpret this as a sign of waning confidence among foreign investors in the short term, driven by exchange rate volatility, global monetary tightening, and risk-off sentiment toward emerging markets.
In contrast, longer-term capital commitments appear to be strengthening. Foreign direct investment (FDI) surged by 149.1 per cent to $4.01 billion, indicating that strategic investors are increasingly positioning for long-term opportunities in Africa’s largest economy.
However, the resilience in FDI has not been sufficient to offset external pressures. Nigeria’s current account surplus, while still positive, declined significantly by 26.2 per cent to $14.04 billion. The contraction reflects both revenue-side challenges and rising expenditure obligations, particularly in services and income payments.
A key driver of the weakening position is the decline in crude oil export earnings, which fell by 14.4 per cent to $31.54 billion. Given Nigeria’s continued reliance on oil as its primary source of foreign exchange, the drop underscores the vulnerability of the external sector to fluctuations in global energy markets and domestic production constraints.
Encouragingly, the impact of weaker crude revenues was partially mitigated by strong growth in gas exports, which rose by 21.4 per cent to $10.51 billion. This shift points to the gradual diversification of Nigeria’s hydrocarbon export base, although not yet at a scale sufficient to fully stabilise external earnings.
Further support came from improvements in the goods account, which recorded a stronger surplus of $14.51 billion. This performance was largely driven by increased refined petroleum exports from the Dangote Refinery, which contributed $6.13 billion in export revenue. The refinery’s operations also played a critical role in reducing fuel import costs, which fell by 28.9 per cent to $10.00 billion, easing pressure on the country’s import bill.
Yet, these gains were offset by persistent structural deficits in other areas of the external account. The services account deficit widened to $14.58 billion, reflecting increased spending on transportation, travel, and insurance; categories that continue to drain foreign exchange due to Nigeria’s limited domestic capacity in these sectors.
Even more pronounced was the rise in primary income outflows, which rose by 60.9 per cent to $9.09 billion. This increase was driven largely by higher dividend repatriation and interest payments to foreign investors, highlighting the cost of external financing and the growing burden of servicing foreign capital.
Despite the overall deterioration in external accounts, Nigeria’s foreign reserves provided a measure of stability. External reserves rose by 13.8 per cent to $45.75 billion, offering a buffer against short-term shocks and supporting the country’s ability to meet external obligations. Analysts note that this reserve buildup reflects a combination of policy measures, improved inflows in certain sectors, and possibly reduced intervention in the foreign exchange market.
